CTC’s Billionaire Owner Making U.S. List Adds to Selloff

March 31 (Bloomberg) -- CTC Media Inc., whose billionaire
co-owner is among Russians targeted by U.S. sanctions, is
heading to its biggest quarterly selloff since 2011 as the
economic slowdown threatens to crimp television ad revenue.

The stock has lost 36 percent in New York trading this
year, leading the 20 percent decline in the Bloomberg index of
the 14 most-traded Russian shares in the U.S. RTS stock-index
futures retreated 1.5 percent to 114,260 in the U.S. hours on
March 28.

Concern is mounting that Russia could slip into a recession
after President Vladimir Putin’s annexation of Crimea prompted
the U.S. and Europe to impose financial sanctions on the
country. Yury Kovalchuk, who controls CTC through a 25 percent
stake, was made a subject of the sanctions because he’s a close
adviser to Putin. CTC, the operator of the nation’s fifth-most
watched TV station, depends on ad sales for 98 percent of its
revenue.

“CTC is being hit by a combination of several negative
factors, including the economic slowdown in Russia, which will
almost inevitably lead to lower ad budgets and lower revenue for
media companies,” Sergey Libin, an analyst at Raiffeisenbank AG
in Moscow, said by phone on March 28. “CTC has also been badly
affected by the political crisis.”

Libin cut his recommendation on CTC to hold from buy on
March 17.

Kerry Meeting

U.S. Secretary of State John Kerry said Russia must pull
forces back from Ukraine’s border as both sides seek a
diplomatic solution, while his Russian counterpart urged the
government in Kiev consider devolving power to give Ukraine’s
regions more autonomy.

During four hours of meetings yesterday in Paris with
Russian Foreign Minister Sergei Lavrov, Kerry said “ideas and
suggestions” were discussed and he would consult with President
Barack Obama on next steps. He and Lavrov, at separate
briefings, said the sides would hold further talks to seek an
outcome acceptable to Ukraine.

Kovalchuk controls CTC through his Telcrest Investment Ltd.
and also owns Ren-TV and Channel 5 in Russia. His St.
Petersburg-based OAO Bank Rossiya, the nation’s 17th biggest
lender, became the first financial institution to face U.S.
sanctions over the Ukrainian crisis this month.

Putin’s move to annex Crimea following the ouster of his
ally Viktor Yanukovych from the Ukrainian presidency last month
has pushed Russia and the West into their worst crisis since the
end of the Cold War.

Financial Aid

Putin called Obama on March 28 to talk about a U.S.
proposal to resolve the conflict. Obama told Putin that a
diplomatic solution “remains possible only if Russia pulls back
its troops and does not take any steps to further violate
Ukraine’s territorial integrity and sovereignty,” the White
House said.

The U.S. Senate on March 27 passed legislation providing
financial aid to Ukraine and expanding sanctions on Russian
officials. The House of Representatives will vote tomorrow on
the Ukraine bill, Megan Whittemore, a spokeswoman for Majority
Leader Eric Cantor, a Virginia Republican, said March 28.

The World Bank last week cut Russia’s gross domestic
product growth estimate to 1.1 percent for 2014 from 3.1 percent
expected earlier. Capital outflows of as much as $150 billion
this year may push the $2 trillion economy to contract as much
as 1.8 percent, it said on its official website on March 26.

Ad Market

“Global risks are expected to remain prominent with
continuing higher overall market volatility,” Birgit Hansl,
World Bank’s lead economist for Russia, said March 26, according
to a statement on the website. “The high-risk scenario assumes
a more severe shock to economic and investment activities if the
geopolitical situation worsens.”

Growth in Russia’s $9.2 billion advertising market will
slow to about 6 percent in 2014 if the economy continues to
grow, Raiffeisen’s Libin said. That compares with a 10 percent
expansion in 2013, according to data by the Association of
Communication Agencies of Russia, or AKAR.

Television ads, which account for half of the Russian ad
market according to AKAR, will decelerate more than any other
segment of the industry, because they are the most expensive.
Online ads, which are cheaper, will slow the least should
economic growth decrease, Boris Vilidnitsky, an analyst at
Barclays Plc, said by phone from London on March 28.

Yandex NV, Russia’s biggest Internet company, has plunged
32 percent this year, wiping out $4.5 billion in market
capitalization. The Hague-based Yandex made 99 percent of its
revenue from ad sales as of the third quarter of last year, data
compiled by Bloomberg show.

Search Engine

Yandex, the online search engine whose market share in
Russia is twice that of Google Inc.’s, increased its audience to
62.1 percent this month, compared with 61.9 percent in February,
LiveInternet’s data show. Google’s share was at 27.3 percent in
March, up from 27.2 percent.

“I would strongly recommend buying Yandex at these levels
if we knew for sure that Putin is not going into the rest of
Ukraine and was satisfied with just Crimea,” Barclays’s
Vilidnitsky said. “The problem is that there is next to no
predictability. Many investors are simply scared and avoid
exposure to Russia all together for now.”